WASHINGTON -- The House sent a message to corporate America's plushest executive suites yesterday: It's time to put your pay packages to a vote.
Lawmakers voted 269 to 134 to require public companies to put executive pay packages before shareholders for an advisory vote. Business groups lobbied against the measure, saying it would allow special interests such as labor unions to meddle in management decisions.
The bill also faces opposition from the White House and an uncertain future in the Senate. But supporters say the House vote succeeded in elevating popular displeasure with lavishly paid executives to a national issue of economic justice, alongside taxes, wages and trade. "It's a wake-up call for corporate America," said Amy Borrus, deputy director of the Council of Institutional Investors. "Companies should take this matter seriously."
Indeed, the House vote is the latest in a series of developments that underscores growing concern over multimillion-dollar pay plans that sometimes bear little relation to performance.
The Securities and Exchange Commission approved stricter disclosure requirements that take effect this year in an effort to make executive compensation more transparent. And shareholder resolutions demanding advisory votes on compensation are increasingly common at corporate annual meetings.
Although most of these measures are rejected, shareholder advocates recently notched a few victories on the compensation front. In January, Robert L. Nardelli was ousted as chief executive of Home Depot Inc. in part because of criticism of his pay - more than $140 million over six years, even as the company's stock sank in value.
Close observers maintain that the issue's potency derives from a sense that average American workers are struggling to pay their bills and seeing their retirement and health benefits diminish.
"By every measure, there is increasing discontent in our country about income inequality generally - and CEO pay specifically," said Damon Silvers, associate general counsel of the AFL-CIO. "I think passage of this bill is very significant."
Under the House plan, which would take effect in 2009, the compensation of a company's five top executives would be placed before shareholders each year for a nonbinding vote. Such a vote would force corporate boards to consider the repercussions of outsize pay packages before they approved them, advocates said.
"We don't think boards of directors will lightly disregard an advisory opinion from the shareholders," said Rep. Barney Frank, a Massachusetts Democrat and sponsor of the bill. Frank is also chairman of the House Financial Services Committee.
Republican opponents argued that government should stay out of corporate affairs and that the bill could encourage more companies to abandon the public markets and become privately held.
In addition, opponents said that the stricter disclosure rules mandated by the SEC should be given a chance to work before government ratchets up its involvement.
"I'm all in favor of a shareholder vote, if it's done without a mandate from Washington," said Rep. Tom Price, a Georgia Republican.
Others argued that although the bill was narrowly centered on giving shareholders a say on pay, the real issue debated yesterday was the widening pay gap between the cubicle and the executive suite.
Average pay for chief executives averaged 107 times the earnings of the average worker in 1990, according to United for a Fair Economy, a non-profit advocacy group. The gap rose to 525 times average earnings by 2000, reflecting the value of stock options granted during the booming stock market of the late 1990s.
Jonathan Peterson writes for the Los Angeles Times.